If you’re a director of a Limited Company and a parent or step-parent of a child whose expense is maintained by yourself, or you have parental responsibility for a child who lives with you, you may be able to save money by way of the Childcare Voucher Scheme.
For a company director to be eligible for the Childcare Voucher Scheme you must be both an employer and an employee of your company, meaning you take a salary from your role as well as receive remuneration through company shares. The scheme is not available to self-employed individuals or contractors.
Recent changes to Childcare Vouchers
The Childcare Voucher Scheme was initially due to be phased out in April 2018 and replaced with the new Tax-Free Childcare Scheme, but the deadline for new applicants has been extended to 4 October 2018. This means that from the date of this post, you have exactly one month to sign up for childcare vouchers if you are not already using them.
If you’ve already joined the scheme, you can keep getting vouchers as a Director, as long as you do it through the same employer and you don’t take an unpaid career break of over a year. If you successfully apply for Tax-Free Childcare you can’t continue using vouchers or re-join the voucher scheme, so now is the time to consider the relative benefits of each option and work out what will be best for you and your family.
How to Implement Childcare Vouchers for Directors
Firstly, you must check that your childcare provider, au pair, or after school club (in certain circumstances) is registered with Ofsted.
Next, you must contact HMRC or an independent scheme administrator to register for the Childcare Voucher Scheme. Handing this over to a third party will result in you having to pay a commission to your scheme administrator, though you should be able to put this down as a reasonable business expense.
You must also contact your accountant to let them know of the changes.
Keep in mind that if both you and the child’s other parent live with or have parental responsibility (or both) over a child, and you’re both directors of your Limited Company, you may both claim under the Childcare Voucher Scheme, doubling your potential household savings.
As a company director, you may receive childcare vouchers under the scheme even if you don’t take a salary from your role within the company. In this case, the vouchers will be seen as a tax-free employee benefit. If you do receive a salary as an employee of your company, however, you must ensure that your salary sacrifice (see below) doesn’t reduce your salary below the National Minimum Wage (NMW).
Here’s the crux. As a director-employee of a company there are two ways for you to receive childcare vouchers; via your employee payroll as a salary sacrifice (whereby the value of the vouchers is taken out of your salary, meaning you’ll save through reduced tax) or by treating them as a business expense, deducting them from your company profits.
To ease the pain of making this decision the Government provides a childcare voucher calculator online to help you determine how much better off you would be under both options.
In terms of the former, employee childcare vouchers are worth the following tax and National Insurance exemptions a week (regardless of your director status):
- £55 a week (£243 a month) for basic rate taxpayers
- £28 a week (£124 a month) for higher rate taxpayers
- £22 a week (£97 a month) for additional rate taxpayers
If you’ve been in the scheme since before 6 April 2011 you should be receiving the full basic rate exemptions, even if you pay tax at a higher rate.
From your perspective as a director, not only will opening your company up to the Childcare Voucher Scheme allow you to benefit from childcare vouchers by way of beneficial tax and National Insurance exemptions, if any of your employees choose to receive vouchers in exchange for part of their salary (salary sacrifice) this lowers the National Insurance Contributions (NICs) you have to pay on their behalf due to childcare vouchers being exempt from NICs.
Experienced Support with Childcare Vouchers
To speak with a professional to discuss the use of the Childcare Voucher Scheme in your Limited Company and how to implement childcare vouchers for Directors, or to discuss other childcare schemes, contact Tax Agility today on 020 8780 2349 or use our Online Form to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.